Before MAJOR, Chief Judge, and LINDLEY and SWAIM, Circuit Judges.
This is a petition to review a decision of the Tax Court of the United States, entered October 6, 1949, which determined a deficiency in petitioner's Federal estate tax in the amount of $14,876.72. The issue which the case presents, decided adversely to the petitioner, is whether certain gifts made by the decedent, William W. Parish, to his four adult children were made in contemplation of death within the meaning of Sec. 811(c) of the Internal Revenue Code, Title 26 U.S.C.A. § 811(c), which requires inclusion, in the gross taxable estate of a decedent, of an interest in property of which the "decedent has at any time made a transfer * * * in contemplation of * * * his death * *." More specifically, the issue is whether the findings of the Tax Court upon which its conclusion was predicated are supported by substantial evidence, which embodies the further issue as to the competency of the evidence relied upon in support of such findings.
There is little, if any, dispute as to the voluminous findings made by the Tax Court other than those predicated upon alleged incompetent evidence offered by the respondent. The evidence heard by the Tax Court consisted of the testimony of six witnesses and eleven exhibits. Five of the witnesses were offered by petitioner, all of whom were personally acquainted with the decedent. They were two of decedent's sons, Varnum, a lawyer and the present administrator of the estate, and Anthony, cashier of the decedent's bank, said John Hansen, a filling station operator who was a life-long friend of the decedent, William T. Garst, a cattle buyer in Kansas City who had known and done business with the decedent for about forty years and from whom the decedent purchased cattle about the time the gifts in controversy were made, and Charles H. Ruch, the attending physician during decedent's last illness. The sole witness offered by respondent, who testified over objection by petitioner, was William C. Maguire, a revenue agent who made an investigation of decedent's estate long after his death. This witness had no personal acquaintance with the decedent; in fact, he had never seen or talked to him. Of the eleven exhibits offered, six were presented by the petitioner and five by the respondent.
We shall first consider the undisputed facts embodied in the main in the findings of the Tax Court. The decedent, William W. Parish, was born in Momence, Illinois, August 25, 1855, and died there at the age of 89 years, October 15, 1944. The transfers in controversy were made by the decedent in the latter part of 1941, about three years prior to his death, as follows: On October 21, to each of his four children an undivided one-fourth interest in a number of properties, mostly real estate, of the value of about $36,000; on November 15, cash gifts to his three sons in the amount of $4,000 each; on December 2, cash gifts of $3,000 to each of said sons, and in December, a cash gift of $7,000 to his daughter for the purchase of an annuity.
The decedent was the founder and president of the Parish Bank and Trust Company of Momence, and engaged also in farming and the raising of livestock. At his death he was survived by a widow, Elizabeth Heck Parish, his second wife, who was about 70 years of age, and by four adult children of a prior marriage, to whom the transfers in question were made. The children consisted of three sons, Varnum, William and Anthony, whose ages at the time of the decedent's death were 63, 58 and 55 years respectively, and Carrie, an unmarried daughter, whose age at said time was about 60 years. All members of the family lived in Momence, the relationship among them was close and harmonious, and all business matters of major importance were discussed in family conferences.
Beginning in the year 1920, the decedent adopted a policy of making gifts to his children. His father had followed such a plan and decedent often remarked that he intended to pursue the same course. In that year he gave each of his children ten shares of bank stock. In 1923, he gave each of them 70 acres of land out of four separate farms, and promised to give them the remainder of such farms at a later time. In 1932, and again in 1933, he gave each of his sons ten shares of bank stock. In 1935 and 1939, he gave William forty additional shares of such stock, and in the latter year he also gave forty additional shares to each of the other sons. In the latter part of 1940, he gave to each of his four children the remainder of the farms from which he had given them the 70-acre tracts in 1923. Upon these gifts he filed a gift tax return showing their value at $33,500. (Respondent concedes that all gifts up to and including those made in 1940 were not made in contemplation of death.)
Decedent's program of making gifts to his children, commenced in 1920, was interrupted by the depression of 1929, which resulted in the closing of the Parish bank in 1931. He was much concerned regarding this event and felt a moral obligation to the depositors. He determined that they should be paid so far as his personal estate would permit. He so announced to his family, as well as at a meeting of the depositors, and in statements published in the local paper declared his intention to see that all claims of depositors were paid.
The two sons, Varnum and Anthony, acting pursuant to their father's request, proceeded to formulate plans for reopening the bank, and the other son, William, was recalled from California where he then resided to assist in the work.The needed capital was obtained by placing mortgages on decedent's farms and by the sale of some real estate. The new bank opened on November 19, 1932; 60% of the depositors' claims were paid at that time, with a program by which the remaining 40%, or about $50,000, would be paid in the future. The liquidation of the old bank required some ten years and, by December 1941, every depositor in the reorganized bank had been paid in toto.
During the first two years of the bank reorganization, Anthony and William drew compensation of $50.00 per month. William deeded back to his father the 70 acres of land which had been given him in 1923, so that the farm could be mortgaged as a whole, and the other two sons and the daughter waived the rent of $700.00 per year, which the decedent had been paying them for use of their 70-acre tracts. Between 1932 and 1940, Anthony donated $1500.00 to the depositors' fund from his salary at the bank and also turned into such fund his dividends therefrom. The decedent often told his children that when the depositors were paid and the mortgages on his property satisfied, he intended to divide his property with them, and that the quicker they got this 40% paid the sooner he would be able to divide his property.
At the time the decedent made the gifts to his four children in the latter part of 1940, that is, the remainder of the four farms from which he had given them 70acre tracts in 1923, the decedent told his children that he also intended to give them additional properties. He asked Varnum, who was a lawyer, to get together with the other sons and help him figure out how much property he should keep for himself and what property he should give to his children. Varnum did nothing about it for several months, although he was urged by his father on four or five occasions in the spring and summer of 1941 to complete the arrangements, and he also urged Anthony in the same manner. In the summer of 1941, the decedent stated to Varnum, "I would like to have you [boys] get together and figure out this gift program right away; I might take a notion to get married and, if I did, it wouldn't be so convenient to transfer the real estate as it is now." He also told Varnum that he thought he ought to make the gifts, because otherwise his second wife might spend part of the property that he and his first wife had acquired. He never stated definitely to Varnum that he was going to get married but only that he might take a notion to do so. At that time the decedent was making his home with William, and the children learned in June 1941 that their father had become interested in Elizabeth Heck. He told William regarding his plans to get married, but, having heard him say nothing further about the matter, William thought that his father had given up the idea. In September 1941, determination was made as to the properties decedent would give to the different children. Varnum drafted the legal instruments, which were signed by his father October 20, 1941. These instruments effected the bulk of the gifts here involved, although as already noted, there are also included the additional gifts in cash in the amount of $7,000 made to each of his children in the following months of November and December.
We think it unnecessary to state in detail the description or value of property which the decedent still owned after making the gifts in controversy. It is sufficient to note that he owned livestock, bank stock and cash on deposit in banks in the value of about $50,000. It is perhaps also pertinent to note that decedent on October 20, 1941 (the same date on which he transferred the major portion of the property now in dispute) executed a trust agreement conveying real estate and personal property of a value of $115,000 to his three sons as "Trustees of the W. M. Parish Estate." Under the terms of the trust, the decedent had the right to withdraw income or principal during his life up to a maximum of $10,000 per year, and also the right to alter or amend the trust and to remove additional property with the consent of the trustees, and upon his death any remaining principal was to be distributed to or for the benefit of his children. The taxability of this trust was conceded in the estate tax return and is not in dispute.
It may also be pertinent to note the financial condition of decedent's children. Excluding the gifts of 1940 and 1941, Varnum had a net worth of about $50,000. He had a family of seven children, two of whom were in college. Anthony owned his home and received a modest salary as cashier of the bank. William had nothing except what he earned, and Carrie, who was unmarried, had less than $5,000.
On December 29, 1941, the decedent married Elzabeth Heck, and took her to Florida on their wedding trip. Later he purchased and furnished a home in Momence. He said he did this because he was lonesome living with his son and wanted a home of his own. He placed the home in joint tenancy with his new wife and paid off a mortgage which she owed on a farm owned by her. As already noted, decedent's death occurred October 15, 1944. His widow was initially appointed as administratrix of his estate, in ...